Tony Righetti - IR, The Blueshirt Group Tom Edman - President and Chief Executive Officer Todd Schull - EVP and Chief Financial Officer.

Matt Sheerin - Stifel Prabh Gowrisankaran - Canaccord David Rold - Needham & Co..

Good day and welcome to the TTM Technologies, Inc., fourth quarter and fiscal year 2014 results call. Today's conference is being recorded. At this time, I would like to turn the conference over to Tony Righetti with The Blueshirt Group. Please go ahead..

Thank you, operator. Before we get started, I would like to remind everyone that comments made on today's call may contain forward-looking statements. I wish to remind you that any forward-looking information we provide is given in reliance upon the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

The comments that will be made today are management's best judgments based on information currently available. Actual results could differ materially from any implied projections due to one or more of the factors explained in the annual report on Form 10-K and other documents that the company filed with the Securities and Exchange Commission.

TTM does not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or other circumstances, except as required by law.

Please refer to the full disclosures regarding the risks that may affect TTM and the risk associated with TTM's proposed acquisition of Viasystems Group, Inc., which may be found in the current report on Form 8-K and the registration statements on Form S-4 that have been filed by TTM with respect to the proposed acquisition and the company's other SEC filings.

In addition to financial measures prepared in accordance with GAAP, we will discuss on this call certain non-GAAP financial measures, such as adjusted EBITDA.

Such measures should not be considered as a substitute for GAAP and we direct you to the reconciliation included in the company's press release, which was filed with the SEC and is available on TTM's website at www.ttmtech.com. I would like to turn the call over to Tom Edman, TTM's Chief Executive Officer. Please go ahead, Tom..

Thank you, Tony. Good afternoon and thank you for joining us for our fourth quarter and fiscal year 2014 conference call. I will begin with a review of our business and then provide an update on our announced agreement to acquire Viasystems. Todd Schull, our CFO, will follow with a discussion of our financial performance.

We will then open the call to your questions. Let me start with a review of highlights from the fourth quarter. Net sales in the fourth quarter were $390.9 million. GAAP net income was $13.9 million or $0.17 per diluted share. Non-GAAP net income was $23.2 million, or $0.28 per diluted share. For the fiscal year 2014, net sales were $1.33 billion.

GAAP net income was $14.7 million or $0.18 per diluted share. Non-GAAP net income was $39.3 million or $0.47 per diluted share. Fourth quarter revenue came in slightly above our guidance range and non-GAAP earnings were at the upper end of our expectations.

Our fourth quarter revenue and non-GAAP operating income were up sequentially and on a year-over-year basis. We were pleased to see better-than-expected sales in our cellular phone end market in Q4. As anticipated, demand for smartphones continued to improve during the quarter and operationally we executed well with solid yield performance.

The stronger demand for smartphones weighted our mix towards advanced HDI or high density interconnect and rigid-flex PCBs, resulting in a sequential increase in gross and operating margins. During the fourth quarter, our advanced technology work, which includes HDI, rigid-flex and substrate, accounted for approximately 51% of our company's revenue.

This compares to approximately 44% in the third quarter. Increasing the percentage of our business coming from advanced technologies continues to be a key strategy for TTM, as these products offer better revenue and profit growth opportunities. Our blended capacity utilization in Asia-Pacific was 93% compared to 80% last quarter.

We experienced a decline in utilization levels in North America, which operated at 47% during the fourth quarter compared to 54% in the third quarter. The decline was largely due to an incremental increase in plating capacity at our Wisconsin plant as we made this investment to ease a technology bottleneck. Now moving on to our end markets.

Overall, the fundamentals underlying our end markets remain healthy and growing. We continue to believe we are focused on the right end markets, as well as segments and customers within each of these end markets.

The first half of the year has historically been our seasonal low with lower retail spending on cellular phones following the holiday season and the impact of Chinese New Year on our operations. Although a seasonal low, initial metrics are indicating a strong first quarter as compared to last year.

The cellular phone end market, as expected, overtook networking communications during the fourth quarter to become our largest end market with sales accounting for 35% of revenue compared to 25% in the third quarter. We experienced a strong seasonal increase in sales as customer's smartphone programs ran at full production levels during the quarter.

The year-on-year increase in the end market of 54% reflected strength from both our major customer and Greater China customers. The cellular phone end market is expected to represent about 26% of total sales in the first quarter.

We expect sales to continue at elevated levels relative to last year, given the strength of cellular phone end market sales. Sales in the networking communications end market were 27% of total sales compared to 32% in the third quarter of 2014.

Sales were up 8% year-over-year driven by improved demand in telecom equipment and 4G chipset reference designs. We expect sales for this end market to represent about 30% of total sales in the first quarter, while remaining relatively flat on a year-on-year basis.

The aerospace defense end market represented 14% of total sales compared to 15% in the third quarter. On a dollar basis, sales were essentially flat with the prior quarter. We expect the aerospace defense end market to represent about 16% of total sales in the first quarter.

Sales in the computing storage peripherals end market represented 10% of total sales in the fourth quarter, compared to 13% in the third quarter. On a dollar basis, sales decreased about 5% sequentially. The lower sales were primarily due to weaker demand from key server and storage customers.

In the first quarter, we expect sales in computing to represent approximately 14% of sales. The medical industrial instrumentation end market contributed 8% of total sales compared to 9% in the third quarter. On a dollar basis, sales were essentially flat with the prior quarter.

The steady-state of sales in this end market is due to our participation in a wide assortment of semi-test equipment, medical device and industrial applications. We expect this end market to represent approximately 9% of sales in the first quarter. Sales in the other end market were 6% of total sales compared to 6% in the third quarter.

On a dollar basis, sales increased about 10% sequentially. The increase in sales was largely due to increases in automotive, railway transportation and consumer programs.

We expect the other end market to represent about 5% of total sales in the first quarter as seasonal lows for consumer device related spending in particular will impact this end market. Our top five customers contributed 52% of total sales in the fourth quarter of 2014 compared with 45% in the third quarter.

Our top five OEM customers during the quarter, in alphabetical order, were Apple, Cisco, Ericsson, Huawei and United Technologies Aerospace. Our largest customer accounted for 34% of sales in the fourth quarter, which is typically the seasonal peak.

We are expecting a less dramatic seasonal impact than last year as we enter the first quarter, given the continued pace of current customer programs in cellular phones. At the end of the fourth quarter, our backlog, which is subject to cancellations, increased year-over-year by $26.2 million to $201 million.

Our book-to-bill ratio for PCBs was 0.92, an improvement from 0.85 of one year ago. ASPs increased 3% in Asia-Pacific from the third quarter, primarily a result of a shift in our product mix towards advanced technology PCBs. In North America ASPs declined by 3% due to product mix.

Overall, the seasonally strong demand for our advanced technology PCBs resulted in strong fourth quarter results as demonstrated by our better-than-expected revenue and non-GAAP earnings at the high-end of our range.

Before I wrap up my discussion, I would like to briefly comment on the progress we made during the quarter towards closing the Viasystems acquisition. We received all required shareholder and foreign approvals necessary to complete the transaction.

Still remaining is the review by the United States Federal Trade Commission and approval by the Committee on Foreign Investment in the United States. In light of where we are in the process, we continue to expect to close the acquisition in the first half of 2015.

Once complete, we will move forward on three key strategic components of the acquisition.

First, the combination will reinforce our position as one of the largest and most diversified global PCB manufacturers with a broad technical skill set and the ability to support our customers' product life cycles from R&D through production anywhere in the world.

The combined company will have substantial resources to invest in support of our large and growing global customer base. Second, TTM's market position and customer base will become even more diverse with this combination.

In particular, we expect sales from the automotive segment, already an area which has been increasing for TTM, to gain further momentum due to Viasystems' established position in the core automotive applications related to engine controls, sensors and safety systems.

We are looking forward to combining TTM's advanced technologies with Viasystems' market access to improve our positioning in this growth market. In addition, Viasystems will bring complementary businesses to TTM in the medical industrial instrumentation, networking communications and aerospace and defense end markets.

This diverse market exposure will help to dilute the seasonality of the cellular phone end market.

Third, we expect that this combination will be accretive to TTM's non-GAAP earnings per share in the first year following the closing, as we combine over $55 million and run rate synergies with the already strong cash flow and earnings generation capability of the combined company.

In summary, we are pleased with the progress we made in 2014 on the key initiatives I laid out entering this year.

Specifically, our teams did an excellent job of sharing best practices across our global footprint, particularly in the networking and communications end market where we obtained critical qualifications and demonstrated strong performance in 2014 in our Asia-Pacific operations.

We also made progress in our prototyping process with the goal of improving our time to ramp and yield for new products. Results of this initiatives bore fruit in the form of lower scrap rates at several key facilities and strategic customer qualifications, particularly in the phone market.

Unfortunately, these improvements were partially masked by the power outage we experienced in the third quarter. Heading into 2015, I would like to highlight several critical areas of focus for TTM.

First and foremost, we will be working with the Viasystems' management team to plan for a successful day one after closing our transaction, which will allow our combined company to deliver accretion to our investors in the first year, while achieving critical integration milestones.

Second, we will continue to focus on the sales of our advanced technology capabilities into opportunities beyond the cellular phone and computing end markets. In 2014 approximately 35% of our advanced technology revenue was generated from end markets other than cellular phone and computing, an increase of 12% from the prior year.

Finally, we will continue to improve our operational performance through the sharing of best practices in our footprint with a focus on improved scrap rates, on-time delivery and reduced costs.

As we enter the first quarter, demand for our advanced technology PCBs during this traditionally soft period is better than we have experienced in recent years and we are enthusiastic about the opportunities we see to grow the business. Now Todd will review our financial performance for the fourth quarter..

Thanks, Tom and good afternoon, everybody. For the fourth quarter, net sales were $390.9 million, an increase of $45.6 million or 13.2% compared to the third quarter net sales of $345.3 million. As Tom said earlier, the sequential increase in sales was due to significant gains in the cellular phone end market.

GAAP operating income for the fourth quarter was $26.6 million compared to operating income for the third quarter of $12.3 million. On a GAAP basis, our net income for the fourth quarter of 2014 was $13.9 million or $0.17 per diluted share. This compares to GAAP net income of $7.7 million or $0.09 per diluted share in the third quarter of 2014.

The remainder of my comments will focus on our non-GAAP financial performance.

Our non-GAAP performance excludes the amortization of intangibles, stock-based compensation expense, non-cash interest expense, restructuring and impairment charges, costs associated with the early extinguishment of debt, acquisition related costs and other unusual or infrequent items as well as the associated tax impact of these items.

We present non-GAAP financial information to enable investors to see the company through the eyes of management and to provide better insight into the company's ongoing financial performance. Gross margin in the fourth quarter was 17.6% compared to 14.3% in the third quarter.

The gross margin increase was due primarily to the increased volume of sales at our advanced technology plants, which allowed us to better utilize those facilities and improve yields. Selling and marketing expense was $9.7 million in the fourth quarter or 2.5% of sales compared to $8.8 million or 2.5% of net sales in the third quarter.

Fourth quarter G&A expense was $24.4 million or 6.2% of net sales, compared to $22.6 million or 6.5% of net sales in the previous quarter. Interest expense was $3.1 million in the fourth quarter, compared to $3.5 million in the third quarter.

We recorded $1.6 million of foreign exchange gain in other income in the fourth quarter, essentially the same as we recorded in the third quarter. Our effective tax rate in the fourth quarter was 30% as compared to a rate of 32% in the third quarter. The rate decreased primarily due to the passage of the R&D tax credit in the United States.

Fourth quarter non-GAAP net income was $23.2 million or $0.28 per diluted share. This compares to third quarter non-GAAP net income of $11 million, or $0.13 per diluted share. Adjusted EBITDA for the fourth quarter was $60.5 million or 15.5% of net sales, compared with third quarter adjusted EBITDA of $43.6 million or 12.6% of net sales.

Moving on to segment performance. The Asia-Pacific segment had sales of $264 million in the fourth quarter, up 23% from $214.7 million in the third quarter. Gross margin for the Asia-Pacific segment was 18.3% in the fourth quarter compared to 13.6% in the prior quarter. The increase in gross margin was due to the factors mentioned previously.

The Asia-Pacific segment's fourth quarter operating income was $28 million compared to $10.8 million in the third quarter. The North America segment recorded fourth quarter sales of $127.4 million, down from $131.1 million in the third quarter. Gross margin for our North America segment increased 16.1% from 15.4% in the third quarter.

The gross margin increase was due primarily to a favorable product mix and improved yields. The North America segment's operating income for the fourth quarter was $6.6 million compared to $7.2 million in the third quarter.

Cash and cash equivalents at the end of the fourth quarter totaled $279 million, an increase of approximately $30.3 million from the third quarter. Cash flow from operations was a strong $52.4 million, while we incurred capital expenditures in the fourth quarter of approximately $26.3 million.

For the full year our cash capital expenditures were $109 million. However, our new purchases were only $70 million.

Similarly in 2015, we project our cash capital expenditures will be approximately $100 million, with new purchases of approximately $70 million, indicating future cash capital expenditures will decline, as much of our advanced technology infrastructure is now in place.

Net debt was $277.2 million at the end of the fourth quarter, a decrease of $30.3 million from the end of the third quarter. In March, we expect to pay the next installment on our Asian term loan of $48.1 million. Depreciation for the fourth quarter was $24.3 million.

Before I turn to guidance, I would like to provide an update on the financing activities related to the Viasystems acquisition. As you know, we received a fully underwritten financing commitment from JPMorgan, Barclays, RBS and HSBC to finance the transaction.

This means that the closing of the transaction is not contingent upon our obtaining financing. We are however, currently in the marketplace to put in place a more permanent capital structure. Now I would like to turn to guidance for the first quarter. In the first quarter, we expect revenue to be in the range of $310 million to $330 million.

Last year, our first quarter revenue was $291.9 million. We expect non-GAAP earnings to range from $0.06 to $0.12 per diluted share. This is based on a diluted share count of approximately 84.4 million shares. Last year, our first quarter earnings per share was $0.01. We expect that SG&A expense will be about 10% of revenue in the first quarter.

We expect interest expense to total about $3.2 million and we estimate our effective tax rate to be between 29% and 33%. To assist you with your financial models, we offer the following additional information.

We expect to record during the first quarter amortization of intangibles of about $1.9 million, stock-based compensation expense of about $2.1 million, noncash interest expense of approximately $2.6 million and we estimate depreciation expense will be approximately $25 million.

Finally during the first quarter, we expect to sell the legal entity that owns our MAS facility that was closed about one year ago. We estimate proceeds of approximately $20 million, which will be collected over the next two quarters. We do not anticipate any significant gain or loss on this transaction.

Before we turn to your questions, I would like to mention our upcoming conference participation. We will be presenting at the Stifel Technology, Internet and Media Conference in San Francisco on Tuesday, February 10. A press release was issued on Monday with additional details for this event.

That concludes our prepared remarks and now I would like to open the line for questions.

Operator?.

[Operator Instructions]. We will take the first question from Matt Sheerin from Stifel..

Hello, Matt..

Thank you. Good afternoon, guys. Just a couple of questions. One, maybe to your commentary about capacity in North America and you talked about adding plating capacity in Wisconsin to release some bottlenecks. Could you elaborate on that? I am not sure what that means.

What projects or programs do that relate to?.

Sure, Matt. This is Tom Edman. Let me comment on that. As you know, our facility there is mainly involved in the networking communications space and in doing primarily prototyping work and pilot production. One of the areas of technology development in that space is VIPPO technology, or VIA in PAD Plated Over technology.

It requires additional plating layer with some specialized equipment requirements. And really in order to meet those requirements, we needed to add that plating capability. It ends up in terms of how we calculate capacity, adding capacity, but it was primarily driven by a technology need there..

That was related to the networking and telecom space?.

Correct..

Okay and the overall capacity utilization there though, you talked about below 50%. It doesn't look like there is going to be a lot of growth from your North America business this year.

I know you have got Viasystems the number one concern here and I imagine once the companies come together, you are going to talk about potentially consolidating manufacturing, but are you looking at plans, obviously 50% utilization, probably not acceptable.

So are you looking at any consolidation in North America?.

low-volume environments, you are always going to be operating at a lower utilization level. However, as we go forward and as you pointed out, as we look at our combined footprint with Viasystems, yes, we will be looking across the footprint, where there might be opportunities.

I do want to make sure that we also have a chance to compliment our team in North America for doing a tremendous job in raising margins in the quarter in a down revenue environment. So very strong performance in light of that slightly reduced revenue picture..

Okay. Yes, fair enough. And then within your handset or cellular business, I think you said it was 34% of revenue. Your top customer, or 35%, and your top customer was 34%. I know for that customer you also participate in tablets and other products. But it looks like that customer is still the lion's share of your handset exposure.

Could you talk about your exposure to other customers and growth opportunities with the Asian players, particularly some of the China players?.

Sure. Yes, I and think you are absolutely right. The largest customer, we do more than just smartphones. So it's not a straightforward calculation there. We did see good year-on-year improvements, particularly in what we call the Greater China customer base. So good improvements there. As you know, we are on the 4G, so the cutting edge of smartphones.

So as those customers develop and move into 4G-enabled smartphones, we see volumes picking up. There has been a balance there. We also have some exposure to a Korean customer and volume there has not been as substantial. So there is a balancing factor there as well..

Okay, and just one other question for me, just regarding the networking communications space.

It looks like you saw a little bit of weakness, but that was sort of in line with your guidance and it looks like you are guiding more seasonal than anything, whereas a number of suppliers and EMS companies have talked about seeing incremental weakness recently across all geographies.

Could you just give us some color on what you are seeing in that space?.

Sure. As we talk about this space, we usually talk about the telecom side and the networking side and on the telecom side, I think there has been some impact, primarily from what should be a temporary slowdown on the China 4G buildout.

We are encouraged to see the projections that beyond China mobile, that the other two players in China are now getting increasingly involved in building up 4G infrastructure. That should be helpful for us in the balance of 2015, but certainly short-term telecom has been impacted there.

On the networking side, we have actually seen more of a strong environment and as you know, we are involved in sort of early-stage prototyping work as well as volume production, but better environment there. And that leads to what is pretty much a flat year-on-year situation in networking communications for Q1..

Okay. That was helpful. Thanks very much..

Sure thing..

We will now take our next question from Prab Gowrisankaran from Canaccord. Please go ahead..

Hi. thanks for taking my question and congrats on a strong quarter. Couple of questions. One, on the smartphone strength you have guided to 26% in Q1. Is that more because of the Greater China customers? Or are you seeing a change? And I have a follow-up in terms of the capacity utilization. So it sounds like the advanced HDI would still be high in Q1..

Yes. Thank you. Just a comment on, we won't cover specific customers but I think your characterization is right. We are seeing strength, certainly year-on-year strength in cell phone as we go into Q1 in the smartphone area. I think that's been driven by a demand for end products and certainly the news has been very positive.

The reviews have been very positive on new generation cell phones, smartphones that have been introduced there. And yes, that would lead to, sequentially, we are guiding down. So you would see lower utilization in the fourth quarter, but if you look year-on-year, certainly a better utilization picture there..

Okay and the other question I had was, in terms of utilization trend, I know 93 is the high, do you see staying above the 75% level just because you have guided to a 26% smartphone quarter? And in terms of the North America capacity, do you see crossing the 50% threshold, with the plating capacity being added?.

I will take that one, Prab. In terms of Asia, one dynamic that you have to keep in back of your mind here in the first quarter, is the Chinese New Year holiday, which has an impact on the operations of both us and our customers where you lose about week, nominally a week, sometimes a day less, sometimes a few days more. But just say, roughly a week.

So yes, there's capacity there. Our number will be, you can work the math, it's going to be down relatively. But then keep in mind that we are really working off 12 weeks of businesses instead of 13, because we are basically shut down one week.

So the utilization levels, taking that into account, for Q1, if you look back at our history over Q1s in our Asia-Pacific segment, are going to look pretty good on a comparative basis. To your point or to your question on North America, I think it's fair to say that they are going to be in approximately the same range revenue.

Moves a little bit in Q1 versus Q4. But we don't expect to see a significant improvement in our utilization in North America in Q1..

Okay. Then the last question I had was just on advanced technology. You crossed the 50% threshold.

Longer term, looking at 2015, do you expect overall for the full year to get to those levels? Or would it trail off a bit, just because Q4 was a strong quarter, right, for advanced tech?.

Yes. So if you look across the year for 2015 with the strength that we are seeing in Q1 and Q2, I think you could anticipate a good growth in our cell phone end market.

With that in mind, then you are going to look at, again, year-over-year, for the full year certainly an improvement in the percentage of advanced technology versus our conventional product..

Okay. Thanks a lot..

Thank you..

[Operator Instructions]. We will take the next question is from Rich Kugele from Needham & Co..

Hi there. David Rold, on for Rich..

Hi, David..

Hi there. One question on the computing end market. Some recent forecasts are calling for pretty sharp drop in tablet builds, but you kind of suggest otherwise.

Am I correct there? Or there may be some offsets within computing? Any color you could provide there?.

So we have already and I think you are aware of this, if you look year-on-year on the computing side, we were down in the fourth quarter and that reflects the fact that allocations have certainly been shifted towards the smartphone side. And that, from our standpoint, not a bad thing, more unit volume on the smartphone side than on the tablet side.

As we look into Q1, as we look at the entire computing end market. So you see some movement there with new products being rolled out. A little bit of a pickup of volume. So it is up. We are projecting up sequentially. But then if you look year-on-year, certainly down year-on-year with that allocation shift.

So that's really the dynamic that's going on there..

Okay. Got it. Very helpful. Thank you..

And with no further questions in the queue, I will now turn the call back over to management for closing comments..

Thank you very much. I just wanted to remind everyone once again that we will be at the Stifel Technology Conference presenting on February 10. Look forward to meeting everyone there and we are certainly encouraged by the present environment. Thank you again for joining us..

This does conclude today's conference. Thank you for your participation..